ORDER
I.P. Bansal, Judicial Member
1. This is an appeal filed by the revenue and is directed against the order of CIT(A) dated 12th March, 1998 for AY 1993-94.
2. Ground of appeal reads as under :-
1. The ld. CIT(A) has erred in law and on facts in directing to adopt capital loss at Rs.1,08,27,497/- as against capital gain worked out by AO at Rs. 6,78,274/- by doing valuation of shares on the basis of provision of Rule 1-D of W.T. Act by adopting break up method and by ignoring the unfair and biased valuation report prepared by valuer Shri Amal Dutt Dhruv who is also one of the Director of the company who has adopted capitalization ratio @ 10 without any base and by grossly overvaluing shares 162 on 1.4.1981 which were acquired only one year back 10 per share on 18/4/90 particularly when the market price of Steel Giant Tata Iron & Steel Co. Ltd. is also Rs. 142.45 of Rs. 100 per share.
3. On the sale of 51252 equity shares of a company known as Panchmahal Steel Ltd. the assessee in its return of income has shown a long 1 term capital loss at Rs.1 ,08,27,497/-, computation of which is asunder ;-
Sale consideration of 51252 Equity shares
@ Rs. 150/- per share - Rs. 76,87,8000/-
Less: Cost of acquisition of equity shares
acquired by the company prior to 14.1981.
The fair market value of shares is substituted
Under Section 55(2)(b}(i) of the IT Act, 1961. The FMV of
shares as on 1.4.81 works out at Rs. 162/- per
share as per valuation certificates of M/s Amal
Dutta & Associates, Chartered Accountants &
approved valuer Rs. 1,85,15,297/-
(51252 equity shares x162 FMVx 223 (index for 92-93)
----------------------------------------------------
100 (base cost index)
------------------
Rs.1,08,27,497/-
==================
The said shares were acquired by assessee on 18th April 1980 @ Rs.10/- per share. While taking the cost of shares as on 1/4/81, as is mentioned above the assessee has relied upon the valuation certificate given by M/s Amal Dutt & Associates who is an approved valuer. For making valuation the assessee had adopted yield method. The AO did not accept such valuation and valued the said shares (unquoted shares) as per method prescribed under Rule 1-D of Wealth Tax Rules. The said working has been given in Annexure-1 of the assessment order and is reproduced below for the sake of convenience.-
“Annexure-I
Reg; Sirhind Steel Ltd. A.Y.1993-94
——————————————————————————–
Working of Market value of Unquoted equity shares of Panchmahal Steel Ltd. as on
1.4.1981 for the purpose of Section 55 (2) of the Act i. e. to find out cost of
acquisition.
——————————————————————————–
As per the method prescribed under Rule 1D of W.T. Rules.
————————————————————
Base Balance-sheet: For the year ended on 30.9.1980 (immediately preceding date of
valuation as an 1.4.1981
——————————————————————————–
ASSETS:-
——–
Fixed assets(after depreciation)
But including capital work in progress- 1,31,01,898/-
Current Assets:
---------------
(a) Inventories 1,92,57,909/-
(b) Sundry Debtors 31,53,789/-
(c) Cash & Bank Balances 19,355/-
(d) Loans& advances made
to others- 16,26,545/-
----------------- 2,40,57,598/-
-------------
Total of assets............ 3,71,59,496/-(A)
LIABILITIES:
------------
(A) Secured Loans:
(a) GIDC 17,04,891/-
(b) GSFC 22,84,5 29/-
(c) State Bank of
India(W.C.) 13,00,000-
(d) SBI(Term
Loan) 7,54,828-
(e) Demand cash
Credit 18,81,512-
--------------- 79,25,758//-
(B) Unsecured loans (GIDC) 6,20,890-
(C) Liabilities for sundry
creditors(excluding
liability 40,79,226/-
-------------
Rs. 1,00,020/- for gratuity 126,25,903/-
-------------
TOTAL OF LIABILITIES 1,26.25,903-(B)
------------------
Net surplus of assets aver liabilities (A) minus (B) 2,45,33,61 3/-(C)
------------------
Total no. of fully paid up equity shares 3,00,0000/-(D)
Break-upvalue of each fully paid equity
Share (face value of Rs. 10/-) 2,45,33,613/-
--------------
3,00,000/-
= Rs.81.78/-
Market value of each share: Rs. 81.78 @ 75% = Rs.61.33/-
i.e. 75% of break up value =================
COST OF ACQUISITION AS ON 1.4.1981 = Rs. 61.33/-
of equity shares of Panchmahal Steel Ltd."
Thus the AO worked out long term capital gain of Rs. 6,78,274/- as against long term loss computed by assessee at Rs.1 ,08,27,497/-. For arriving at a conclusion that the method of valuation shown by the valuer of the assessee would not be accepted in preference to Rule 1-D the AO has mentioned in the assessment order that following facts have been taken into consideration:-
“(1) The directors (not all but some of them) vis. Shri R. L. Malhotra and Shri Ravindra Malhatra were the directors in Panchmahal Steel Ltd.
(2) The regd. Valuer Shri Amal Dutt Dhruv is one of the Directors of the assessee-company and hence the valuation arrived at by him an the basis of profit-earning method is not just and fair and is in the benefit of the company in which he is Director.
(3) Panchmahal Steel Ltd. has neither declared nor paid any dividend in the three years which are covered for working out profits.
(4) The shares of Panchmahal Steel Ltd. were acquired on 18.4.1980 @ Rs. 10/- per equity share and as on J. 4.1981, the shares are valued At Rs.162- per equity share, which is on much higher side and without any sound benefits in the hands of the share holders in the form of dividend or easy liquidity in the market.
(5) It is also seen that the assessee company has acquired the shares at the face value of Rs.10/- on 18.4.1980 and as on 1.4.1981, the shares are valued at Rs. 162/- after a period of less than a year. Since Panchmahal Steel Ltd. was not listed on Stock Exchanges as on L 4.1981 and no dividend was declared or paid since its commencement of business, the shares valued at Rs.162/- by the Registered Valuer is quite on higher side. On closely going through me balance-sheets and profit & loss accounts of Panchmahal Steel Ltd., there was no abnormal increase in production activities or its profits during AY 1980-81, AY 1981-82 and AY 1979-80.
(6) It is also seen from the list of leading steel companies which were registered on stock exchanges and shares of which were being quoted, no leading steel company had the shares fetching the value of Rs.162/- or so on those days. To support this view, the following quotations are cited as per the Ready-reckoner wherein the shares of leading steel companies are noted: -
Face value Market value
As on 1.4.81
1. Tata Iron & Steel Co. Ltd. Rs.100/- Rs. I43.45
2. Usha Alty& Steel Rs. 10/- Rs. 35.00
3. Wellcast Steels Rs. 10/- Rs. 24.00
4. Somani Steels Rs. 10/- Rs. 12.00
5. Makund Iron Rs. 10/- Rs. 22.00
6. Modela Steels Rs. 10/- Rs. 18.00
7. Gujarat MM Steel Rs. 10/- Rs. 28.00
8. Kenan Steels Rs. 10/- Rs. 11.00
9. Bhoruka Steel Rs. 10/- Rs. 68.00
10. Anil Steel Rs. 10/- Rs. 13.00
11. Andhra Steel Rs. 10/- Rs. 15.00
The above few citations of shares quoted on the stock exchanges at Bombay and Ahmedabad gives the picture that none of the steel company’s shares were quoted as high as of Rs. 162/- as valued by me Regd. Valuer. Even the most leading Steel Giant in India i.e. Tata Steel & Iron’s shares were quoted at Rs. 142.45/- (face value of Rs.100/-). Thus, there is no justification in valuing the shares at Rs.162/- of Panchmahal Steel Ltd., even on the basis of yield method. Therefore, me most appropriate method to value the shares is available by applying Rule 1D of the W.T. Rules, which is prescribed for valuing the unquoted shares of any Company (other than investment and Managing Agency company. ”
Matter was carried before CIT(A) who vide para 4 of the impugned order concluded that valuation done by the assessee on the basis of yield method should be accepted. The said para 4 is reproduced below for the sake of convenience :-
“4. In Smt. K. V. Rajyalakshmi (223 ITR 25) the assessee had sold shares of a closely held company which were not quoted in the market. The GTO adopted the break-up method of valuation and thereby estimated the value of each share at Rs.178.23 instead of Rs.50 per share which according to the assessee was the worth of the shares as per yield method. The Hon’ble High Court explained that the Supreme Court decision in the case of Bharat Hari Singhania v. CWT 207 ITR 1 does not over rule the decision in Shri Ambalal Sarabhai’s case 170 ITR 144 and Dr. D. Renuka ‘s case 175 ITR 615 specifically stated that in a Gift tax case Rule 1-D of the W.T. Rules will have no bearing and the yield method is more appropriate. Respectfully following the Hon’ble Andhra Pradesh High Court’s decision I agree with the Id AR. for the assessee that Rule 1-D is appropriate only in Wealth-tax proceedings under the W.T. Act and under the IT Act for the purpose of capital gains in the shares of the going or running concern, the yield method is more appropriate. In this case, the valuation as per the yield method has been worked out by M/s Anand Dutt & Associates, CA. and I agree with the same. The AO is directed to compute the capital gains/loss as per the yield method as worked out by the A.R.”
Against the above mentioned findings of ld. CIT(A), the revenue is aggrieved, hence in appeal.
4. Referring to the facts mentioned in the assessment order the sum and substance of which has already been reproduced in the above part of this order, the ld. DR vehemently pleaded that according to the decision of Hon’ble Supreme Court in the case of Bharat Hari Singhania and Ors. v. CWT and Ors. 207 ITR 1, the valuation of unquoted shares under Rule 1-D of Wealth-tax is mandatory. Therefore, he pleaded that the valuation done by AO in accordance with Rule 1-D should have been upheld by ld. CIT(A). He vehemently contended that ld. CIT(A) was wrong in following the decision in the case of Smt. K.V. Rajyalakshmi 223 ITR 25, as according to the decision of Hon’ble Supreme Court In the case of Bharat Hari Singhania (supra) Rule 1-D was mandatory. Therefore, he pleaded that the order of CIT(A) should be reversed and that of AO should be upheld.
5. Against the pleadings of ld. DR, the ld. counsel of the assessee placed before us the decision of this Tribunal dated 29/8/2002 in ITA No. 2922/Ahd/1996 for AY 1993-94. In the case of Minaxi B. Patel v. DCIT ‘A’ Bench. He contended that a similar question had come before the Tribunal wherein the AO had adopted the value of unquoted shares as on 1.4.1981 on the basis of yield method at Rs.5, 8 per share as against assessee’s claim for break up method and the value as per Wealth-tax record which was Rs.18.94 per share. This Tribunal after reproducing the quotation from the decision of Hon’ble Supreme Court in the case of Bharat Hari Singhania (supra) has observed in para 2 as under :-
“2. The first issue in this appeal is relating to ascertainment of the market value of shares as on 1/4/1981 for exercise of option Under Section 55(2). The AO adopted Rs. 5.8 per share based on yield method as against assessee’s clam for break up method and the value as per wealth-tax records. That according to the assessee, works out to Rs, 18.94 per share. Both the methods are recognized ones the former as held in 34 cases as mentioned by the AO in his assessment order and the latter by the Supreme Court in the case of Bharat Hart Singhania 207 ITR 1 (SG). We may quote the following passages from the said decision of the Supreme Court in this regard as under :-
“….Now, there may be several method of valuing an asset or for the matter an umquoted equity share. The rule making authority cannot obviously prescribe all of them together. It has to choose one of them which according to it is more appropriate. The rule making authority has in this case chosen the break up method, which is undoubtedly one of the recognized methods of valuing unquoted equity shares.”
“We are not satisfied that the break up method adopted by Rule 1D does not lead to a proper determination of the market value of the unquoted shares. The argument to this effect, advanced by learned counsel for the appellant, is based upon the assumption/premises that the value determined by applying the yield method is the correct market value. We do not see any basis for this assumption. No empirical data is placed before us in support of his submission or assumption. It may be more advantageous to the appellant but that is not saying the same thing that it alone represents the true method value… ”
“…..The decision it bears repetition, recognizes that the break up method “nonetheless is one of the methods “. In the circumstances, it is difficult to agree -with learned counsel for the appellant either that the break up method is not a recognized method or that the yield method is the only permissible method for valuing me unquoted equity shares. It is not as if the rule making authority has adopted a method unknown in the relevant circles or has devised an impermissible method. There is no empirical data produced before us to show that break up method does not lead to the determination of market value of the shares. Merely because the yield method may be advantageous from the assesses’s point of view, it does not follow that it alone leads to the ascertainment of the true market value and that all other methods are erroneous or misleading this aspect we have emphasised here in before too.”
When both these methods are recognized ones and Income-tax Act does not adopt either, the method favorable to the assessee should be adopted. We also find a direct decision of the Madras High Court rendered in connection with computation of capital gain Under Section 55(2) itself in CIT v. S. Balasubramanian 159 ITR 288 accepting the break up method as appropriate. There are some decisions which state that a rule prescribed under one enactment can be adopted for the outer. Rule 1D was applied in Estate Duty by the Mysore High Court in the case of CED v. J.K. Krishnamurthy 96 ITR 87, Madhya Pradesh High Court in the case of Shyam Sukh Gard v. CED. We, therefore, direct the AO to adopt the break up method as was adopted in wealth-tax assessment of the assessee in asst year 1980-81 and work out the value of the shares in accordance therewith.”
(emphasis is ours)
Read from underlined portion he vehemently contended that according to the conclusion of the Tribunal in the aforementioned case, the method favourable to the assessee should be adopted and the yield method being favourable to assessee should have been upheld. Pointing out to the decision of Hon’ble Supreme Court in the case of Bharat Han Singhania (supra) he pleaded that those observations and findings, should be limited to the Wealth-tax and they have no application on other Acts. For this proposition the ld. counsel of the assessee has placed heavy reliance on the following decisions:-
(1) CIT v. Smt. K.V. Rajyalakshmi 223 ITR 25 (A.P.)
Referring to this decision he contended that it has been held that gift of unquoted equity shares should be valued according to yield method and the question whether such gift should be valued as per yield method and not according to the break up method provided under Rule 1-D of W.T. Rules, 1957, does not merit reference, there being no subsequent decision under the Gift Tax Act either explaining away or stating a different principle of law. He contended (hat while taking this decision their Lordships of Andhra Pradesh High Court have followed the decision of Hon’ble Supreme Court in the case of CGT v. Executors and Trustees of the Estate of late Shri Ambalal Sarabhai 170 ITR 144 as also the decision of Andhra Pradesh High Court in the case of Dr. D. Renuka’s case 175 ITR 615 (both these decisions have been relied upon by the ld. CIT(A)).
(2) ACIT v. K.K. Gossan 66 ITD 26 wherein following the aforecited decision in the case of Shri Ambalal Sarabhai (supra) it was held that unquoted equity shares should be valued on the basis of yield method and not by applying break-up method. In the said decision, the decision of Hon’ble Supreme Court in the case of Bharat Hart Singhania (supra) has been distinguished.
6. In the alternative, referring to Annexure-1 to the assessment order, he pleaded that in any case Rule 1 -D per se is not applicable for computing fair market value as on 1-4-1981 for the purpose of capital gain, therefore, the breakup value arrived at by the AO at Rs. 81.78 per share should be upheld as there is no logic in reducing the same further by 25% to arrive at fair market value to be determined for the purpose of income-tax.
7. In reply the ld. OR reiterated his arguments and contended that the case laws relied upon by the ld. counsel of the assessee have no application as according to the decision of Hon’ble Supreme Court in the case of Bharat Hari Singhania (supra), Rule 1-D was mandatory. Further referring to the alternative argument of ld. counsel of the assessee he pleaded that if application of Rule 1-D is upheld then the valuation which has been done as per Rule 1-D should not be disturbed.
8. We have carefully considered the rival submissions in me light of material placed before us. The limited question to be decided in this appeal, is that what should be the method for valuation of relevant unquoted shares as on 1/4/1981 for the purpose of computing capital gain/loss. According to the department, the legal and valid method is only Rule 1-D as prescribed In W.T. Rules. As against this claim of revenue the case of assessee is that yield method should be adopted. According to the assessee the decision given by Hon’ble Supreme Court in the case of Bharat Hari Singhania (supra) has no application on Income-tax Act For substantiating this plea the main reliance of the assessee is on the decision of Hon’ble Andhra Pradesh High Court in the case of Smt. K. V. Rajyalakshmi (supra) wherein considering the decision of Hon’ble Supreme Court in the case of Bharat Hari Singhania it was held that same cannot be applied to gift tax proceedings. Taking the same analogy it is the plea of the assessee that similarly the said decision could not be applied to income-tax proceedings. For same analogy assessee has relied on the decision of the Tribunal, Delhi Bench in the case of ACIT v. K.K. Gossain. At the time of hearing a query was put to the ld. counsel of the assessee by the Bench that whether there is any contrary decision to the decisions relied upon by him in the case of Smt. K.V. Rajyalakshmi (supra). He replied that there is no contrary decision. However, It has come to our notice that Hon’ble Gujarat High Court in me case of CGT v. Mohanlal Chaturbhuj has held that Rule 1-D of the Wealth Tax Rules 1957 provided for valuation of unquoted shares by break up method is mandatory, therefore, the Tribunal was not justified in directing the Gift Tax Officer to value the shares according to yield method. The relevant observation of Hon’ble High Court is as under :-
“In this reference at the instance of the revenue., the following question is referred for our opinion in respect of asst. yr. 1982-83.
‘Whether the Tribunal is right in law and on facts in directing the GTO to apply the yield method as against applying Rule 1D of WT Rules, 1957, by the GTO for valuing the unquoted equity shares gifted by the assessee?’
2. Mr. Tanvish Bhatt learned counsel appears for the Revenue. Though served, none appears for the respondent-assessee.
3. The controversy in the reference is about the method of valuation to be applied for valuing the unquoted equity shares gifted by the assesses. The GTO valued the shares according to Rule 1D of the WT Rules, 1957, rejecting the assesses’s contention that the shares had to be valued as per the yield method. The AAC rejected the assesses’s appeal. However, the Tribunal allowed the assessee ‘s appeal and directed the GTO to apply the yield method.
4. At the healing of Ms reference, Mr. Tanvish Bhatt for the Revenue has invited our attention to the decision of the Supreme Court m the case of Bharat Han Singhania v., CWT in support of his. contention that r. ID providing for valuation of unquoted shares is mandatory in nature.
5. Having perused Rule 1D of the WT Rules, 1957, which was applicable at the relevant period and the aforesaid decision, we are of the view that since Rule 1D providing for valuation of unquoted equity shares by the break up method is mandatory m nature, the Tribunal was not Justified m directing the GTO to value the shares according to the yield method.
6. In view of the above discussion, our answer to question referred to us is in the negative i.e. in favour of the Revenue and against the assessee.
7. The reference accordingly stands disposed of.”
9. According to rule of precedence every Subordinate Court and Tribunal is bound by the decision of Jurisdictional High Court. Even if there is a contrary decision by some other High Court the decision of Jurisdictional High Court will prevail. According to the Jurisdictional High Court Rule 1D of Wealth Tax Rules, 1957 is mandatory and according to the same valuation of unquoted shares has to be done by break up method as against yield method. For holding so they have referred the decision of Hon’ble Supreme Court in the case of Bharat Hart Singhania v. CWT (supra). In this view of the situation, respectfully following the decision of Hon’ble Jurisdictional High Court, we hold that the method adopted by AO being mandatory is an appropriate method for valuation of unquoted shares. The AO was right in computing the value of unquoted shares as on 1/4/81 as per Rule 1D. No defect in such computation was brought to our notice by the ld. counsel of the assesses despite the fact that he was required to show any such difference in the computation. His altermative plea cannot be accepted as if the same is accepted the valuation done by AO will not remain valuation as per Rule 1D of WT Rules, 1957.
10. In view of our above discussion, the order of ld. CIT{A) on this issue is set aside and that of AO is restored. Before parting with the decision we may mention that case laws relied upon by the ld. counsel of the assessee which included the decision of this Tribunal does not have the support of decision of Jurisdictional High Court in the case of CGT v. Mohanlal Chaturbhuj (supra) and the same is held not applicable to the present case.
11. In the result, the appeal filed by the revenue is allowed.